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Intel may split its foundry business and cancel future factories as it faces ‘most difficult’ period in history

After layoffs, Intel is exploring further measures, including potentially splitting its chip design and manufacturing businesses, as the semiconductor giant grapples with mounting losses, increasing pressure from investors, and scrutiny from lawmakers. The company is working with investment banks to navigate what could be the most challenging period in its 56-year history, sources familiar with the matter have told Bloomberg.
The chipmaker is reportedly discussing the possibility of separating its product-design operations from its manufacturing arm, as well as evaluating which future factory projects might be scrapped.
Long-time advisors Morgan Stanley and Goldman Sachs are said to be providing guidance on these options, which could also include potential mergers and acquisitions.
The potential separation of Intel’s foundry division, which manufactures chips for outside customers, would mark a significant shift in strategy for CEO Pat Gelsinger. Since taking the helm in 2021, Gelsinger has viewed the foundry business as crucial to restoring Intel’s standing in the chip industry.
However, Intel’s recent financial performance has intensified the urgency for change. The company reported a net loss of $1.61 billion in the second quarter of 2024, with analysts predicting continued losses in the coming year. Intel’s stock price plummeted 26% following the earnings report, its worst single-day performance in over 50 years.
This strategic review comes in the wake of Intel’s recent announcement of significant cost-cutting measures. Earlier this month, the company revealed plans to lay off approximately 15,000 employees, representing about 15% of its workforce. The majority of these job cuts are expected to be completed by the end of 2024, as part of a broader initiative to reduce costs by $10 billion annually by 2025. The company also took the unprecedented step of suspending its long-standing dividend.
“It’s been a difficult few weeks,” Gelsinger acknowledged at the Deutsche Bank Technology Conference earlier this week. “We understand that,” he added, referring to the negative market reaction to Intel’s recent announcements.
The potential restructuring and job cuts have drawn scrutiny from lawmakers. Reuters reports that Republican Senator Rick Scott has pressed Intel CEO Pat Gelsinger for more details on the company’s plans, particularly in light of the nearly $20 billion in US grants and loans Intel is set to receive to boost chip production.
In a letter, Scott questioned whether the Commerce Department’s planned awards had failed to include adequate safeguards to protect taxpayer dollars and ensure job creation.
The pressure on Intel has been compounded by its struggles in the artificial intelligence chip market, where competitors like Nvidia have gained significant ground. However, Gelsinger expressed optimism about future products, including “Lunar Lake,” which he described as “the most compelling AI PC product ever.”
The Intel board is expected to meet in September to discuss these options, though no major moves are imminent and discussions are still in early stages. As Intel faces critical decisions that could reshape its future, the outcome of these deliberations will be closely watched by industry observers, investors, and government officials alike.
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